Saturday, Oct. 25, 2008 | 2 a.m.
A few months after investment giant Goldman Sachs acquired the Stratosphere in February, all casino executives had been terminated or left their jobs.
Cleaning house isn’t unusual after a corporate takeover. But the depth of the purge — many middle managers also were let go — raised eyebrows even among seasoned veterans and has upset many rank-and-file workers, who have flooded an internal complaint hotline with calls and fired off letters to Goldman Sachs’ New York headquarters.
The turnover offers a glimpse of the realities of a takeover during the worst economic downturn in the modern casino era.
In one camp are frightened employees who say their workplace has been transformed into a minefield run by hard-line executives. Morale is low, they say, because of the purge of well-liked managers and because they now fear for their own jobs.
In another camp are employees who see opportunity where others see uncertainty. The new executive team is focused and professional where the previous group was lackadaisical and played favorites, they say. Morale is high among motivated employees, they say, and rule changes are necessary for the Stratosphere to survive.
They detail some unpleasant discoveries made by the new team: One executive was stealing money from the casino, a middle manager was pocketing thousands of dollars from non-English speakers in exchange for jobs as casino dealers, and a couple of dealers were falling asleep on the job.
Billionaire financier Carl Icahn sold the Stratosphere to Goldman Sachs’ Whitehall Street Real Estate Funds after interest from Whitehall blossomed a couple of years ago. Unfortunately for Whitehall, which acquired Icahn’s American Casino & Entertainment Properties in February, the timing couldn’t have been worse.
Icahn exited before the first major warning signs of a consumer recession. He made nearly a billion dollars on the $1.3 billion sale, announced at the height of an investor feeding frenzy fueled by cheap credit.
Located north of the Strip, the Stratosphere was profit-challenged from the get-go. It filed for bankruptcy months after its 1996 opening and Icahn gained control in 1998.
The Stratosphere rode the tourism boom, benefiting from a $75 million expansion in 2001 that added 1,000 rooms and some amenities. Before the economic slump, the Stratosphere was filling rooms, and therefore, its casino, restaurants and shows, at record rates.
Whitehall executives told members of the state Gaming Control Board in January they would be keeping American Casino’s management team intact. Whitehall will be “relying heavily” on then-American Casino Chief Executive Richard Brown and Chief Financial Officer Denise Barton “as well as the rest of the ACEP team for their gaming expertise, as we are not traditional gaming operators,” Stuart Rothenberg, a managing director of Goldman Sachs and chairman of Whitehall’s investment committee, said at the licensing hearing.
Shortly after the deal closed, the new executives held a meeting with Stratosphere employees, telling them their jobs were safe.
Managers and workers interviewed by the Sun said they were nervous about the takeover, as any change can mean layoffs. But the feeling seemed to be more nervous optimism than doom.
“We thought maybe the new guys would spend some more money around the place,” said one employee, who requested anonymity.
But the axes were falling.
Brown, the chief executive, left the company in early April and Barton, the chief financial officer, was terminated in September. Frank Riolo was appointed president of American Casino in late April. Riolo had most recently run the Viejas Casino near San Diego and other business ventures for the Viejas tribe, including a retail center, nongaming hotels and a bank.
Riolo appointed a vice president of gaming operations, Keith Pakish, who had that title at the Viejas Casino.
Some new managers were brought in from outside the gaming industry, including Arthur Keith, a former general manager of the Gaylord Opryland Resort & Convention Center in Nashville.
The axes fell especially hard in the table games department, a group that had generated a respectable business considering the Stratosphere’s less-than-ideal location and bargain-seeking customer base. The new executives terminated five of six shift supervisors. The sixth resigned in protest.
“All we did was make that company money. If we were good enough for Carl Icahn, who’s a tough boss, why weren’t we good enough for them?” said one ex-supervisor, who requested anonymity.
Most were over 60 and had worked at the Stratosphere since opening day. None has found a job elsewhere.
“They threw us out at the worst possible time, without warning and for no reason,” one supervisor said, calling their severance of one month’s salary “insulting” given their years of service.
Stratosphere officials said the executive and management turnover wasn’t to cut costs, as they have hired about the same number of people as replacements.
The gaming industry as a whole watched nervously as New Jersey regulators in December yanked the license of Tropicana Entertainment for, among other things, laying off key employees without warning. Although Nevada regulators give casinos more latitude, companies have reason to watch their actions more closely these days.
Nevada Gaming Control Board Chairman Dennis Neilander said the Stratosphere has broken no gaming laws here and isn’t under suspicion for breaking promises that managers would keep their jobs.
Because casino buyers can only take control of a property after they are vetted by regulators, buyers can’t be expected to know whether they will make such decisions until after they have been approved for a gaming license, Neilander said.
Some dealers said they go to work afraid they will be fired, as their bosses were. It’s hard to get through a workday, dealers said, when they are earning only about $50 a day during the week and little more on weekends.
“I’m looking for a new job, but nobody’s hiring dealers from the Stratosphere,” said one dealer who requested anonymity. “We’re getting written up for every little thing.”
They have been told to deal faster and to smile and converse with customers. They must clock in exactly seven minutes before their shifts start. Dealers who speak little English are attending mandatory English classes.
Some welcome the changes, accusing the old management team of favoritism and carelessness.
“This company plays by the book,” said Brian Jacobs, an assistant shift manager, referring to Goldman Sachs. “There’s a reason those (former employees) are not here anymore.”
“Now, everyone is treated the same,” said Michelle Yoachum, a floor supervisor. “There are employees who aren’t giving 100 percent who were getting a free ride.”
The new managers are on the floor more often, watching workers more closely but also complimenting them for jobs well done, she said.
There are other changes as well, including new roulette games and automatic chip sorters. There are new tables, felts and chips — an improvement over tables that were noticeably stained with sweat and alcohol and had pieces missing from their padded edges.
Dealer Sandi O’Day said the changes are forward-thinking and make her more excited about going to work.
“This is the best management we’ve had in a long time,” she said.
Assistant shift manager Ian Choi said he decided to return to the Stratosphere after having left the property six years ago as a dealer.
“People said, ‘Why do you want to go work down there? That’s a break-in house.’ But I was pleasantly surprised. The property looks much better.”
Meanwhile, some said this strait-laced culture is also turning off customers who are gambling elsewhere.
“They’ve run off our good players, our regulars,” one dealer said. “Management says they want to improve things, but the more we do these things, the fewer players I see coming in.”